Hong Kong stocks can’t escape US-China trade war’s ‘very long shadow’

The trade tensions have shown little sign of easing and, on Wednesday, the Trump administration said the president told his top trade official to consider raising proposed tariffs on $200 billion in Chinese goods to 25 percent from the 10 percent rate currently under consideration. China followed up on Friday saying it was ready to retaliate with tariffs on about $60 billion worth of U.S. products.

For investors in Hong Kong looking for a conservative play during the current uncertain environment, Hofer recommended “very defensive local names that should be able to ride out these storms a little bit better,” including Hang Seng Bank.

China Tower, though a mainland company, may also soak up some investor interest with its domestic focus and its positioning that’s seen as less vulnerable to international trade tensions.

“Basically, it’s like a monopoly in the China market,” said Ivan Li, research director at DBS Vickers in Hong Kong, stressing China Tower’s dominant market share.

“Investors are getting more picky and, in general, they are seeing a shift towards more traditional industry,” he said.

Hofer, meanwhile, noted the rapid deescalation in trade tensions between the U.S. and the European Union last month after they agreed to work toward a solution on tariffs and said something similar could happen between Washington and Beijing.

“And, if that happens, then market sentiment will turn on a dime and you’re going to see very sharp rallies in Asia, in China, in Hong Kong, certainly also in Europe,” he said.

Erwin Sanft, managing director and senior portfolio manager for international investment at E Fund Management in Hong Kong, agreed that a trade resolution would be beneficial for Hong Kong equities, mostly because it would bolster the wobbling Chinese yuan.

“To the extent that would help the Chinese currency, then that would be a big boost for Hong Kong because the Hong Kong market very much trades with the renminbi,” he said, referring to the official name for the Chinese currency.